Andrew poses some good questions. — iain — full post follows.
I had a long conversation with someone who posed this question. I know little about WiMAX but I know people who know’great deal, people who have put their money where their mouth is. The’question I pose’isn’t whether WiMAX is going to be successful, but why is Intel (INTC)’pouring so much money into making it a reality?
I’m not trying to start a debate about whether WiMAX will succeed. My cycling buddy would define success as 5M WiMAX subscriber adds in a single year (not total). What isn’t clear is how Intel benefits even if the large investment they are sinking into WiMAX pays off.
Intel has a poor history of developing any successful products in the communication space, let alone mixed signal communication. Historically, Broadcom (BRCM) and’TI (TXN)'(among others)’are far more capable. Odds are these vendors would seize the infant technology from the cradle and produce a superior product.
Even if Intel manages to be a leader in WiMAX chipsets, the market opportunity is a pimple when compared to their existing $35BB business of’mostly CPU’s and companion chipsets. Even if WiMAX chips generate $1BB, it is still noise. Intel lacks a whole suite of products to wrap around this hard-won hypothetical WiMAX market share to generate additional pull through revenue. They sold their mobile CPU business to Marvell (MRVL).’PC CPU’s and chipsets don’t count because they would have won those anyway.
When I asked someone at Intel not involved with WiMAX this question, his response was that Intel sees ultra mobile computing as a key initiative, and WiMAX is the enabler.’This makes sense if you ignore the fact existing wireless carriers don’t want WiMAX.
Virtually all carriers are divided between UMTS (HSDPA) and CDMA2000 (EV-DO) as evolutionary 3G technologies. They don’t care about WiMAX because they have a big installed base (2G) they must migrate. There is Clearwire (aborted S-1 excepts here), and Sprint (S ), which has committed to building out a WiMAX infrastructure. There is also Korea,’which never met a communication infrastructure it didn’t love (ATM, ISDN, DSL, two flavors of’FTTH, 3G – what haven’t those guys deployed?). But the opportunity is dwarfed by the size of the existing mobile voice and data standards.
If Intel was really committed to’growing a mobile wireless business they would identify a product that could both fill their fabs AND meet the needs of existing carriers – not build something counter to their desires.
Here are my three possible theories:
- Intel has concluded that WiMAX will be an incredibly disruptive technology with undeniable performance/price advantages. New carriers will rise as the’incumbent carriers foolishly embrace their legacy technology. I don’t have the technical firepower to form a conclusion here, but I doubt that the Intel’Borg-collective has figured out what many others have not. Perhaps too many’WiMAX guys’at Intel have read ‘The Innovators Dilemma’ and jumped the gun.
- The big push for WiMAX has nothing to do with making lots of money. Instead, it is an initiative that will allow Intel to build a new, separate corporate division focused on mobility and wireless, allowing them to compete in many other markets. As a culture, they prefer to lead rather than follow, so better to champion a new standard than chase competitors who are already established. Even if WiMAX doesn’t pan out, they can move their new wireless R&D Death Star into another market and start taking share.
- Emerging Markets. There are huge untapped expanses of the world devoid of Internet connectivity and more importantly, Intel CPUs. WiMAX as a greenfield technology can bring low cost connectivity to these markets and enable the sale of more PCs. Existing markets already awash with connectivity just aren’t that important.
I think WiMAX is destined to be what I call a crack filler, an alternative’technology that fills in the areas where incumbents are too expensive or not available. WiMAX will be to 3G what Satellite is to Cable – best case.
Either Intel is pouring hundreds of millions of dollars into a foolish endeavor or something is unseen.
(Via Nyquist Capital.)